The South African Reserve Bank’s Prudential Authority has issued a guidance note to banks discouraging them from cutting off companies that offer cryptocurrency services.
In a note signed by Prudential Authority CEO Fundi Tshazibana, the regulator warned that unbanking crypto asset service providers could backfire.
This is because it would make monitoring money laundering, terrorist financing, and proliferation financing activity more difficult.
Banks outright terminating cryptocurrency companies’ accounts also threatens financial integrity in general, Tshazibana said.
For this reason, the regulator encouraged banks to evaluate risks on a case-by-case basis instead of avoiding cryptocurrency-related businesses entirely.
Tshazibana’s note comes after First National Bank (FNB) terminated the accounts of South Africa’s major cryptocurrency exchanges, including Luno and VALR, in March 2020. It notified them in November 2019.
In 2021, Standard Bank sent shockwaves through South Africa’s cryptocurrency industry when it notified automated cryptocurrency arbitrage services that it was shutting down their accounts.
South African cryptocurrency service providers have long argued that unbanking them would be counter-productive.
Binance co-founder and CEO “CZ” Changpeng Zhao echoed this view in a recent interview with MyBroadband. Binance is the world’s largest cryptocurrency exchange by trading volume.
Zhao said that although it sounds counterintuitive, working with cryptocurrency exchanges, and licensing them to operate, is better for regulators than trying to block them.
He also said the best way foreign exchange monitoring boards can enforce currency controls is to allow banks to work with cryptocurrency exchanges.
The Prudential Authority (PA) has now formally advised banks to adopt this thinking when dealing with crypto asset service providers (CASPs).
“The PA is aware that certain banks in South Africa have previously opted to terminate the bank/customer relationship with CASPs or discontinued banking services to CASPs,” Tshazibana states.
She said banks adopted this stance for various reasons, including:
- Uncertainty about the money laundering (ML), terrorist financing (TF) and proliferation financing (PF) risk that CASPs present.
- Lack of formal regulatory requirements applicable to CASPs.
- Perception that CASPs’ clients generally pose a higher risk of using their accounts to launder money, violate sanctions, and support other illicit activities.
“Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely (also referred to as de-risking), for example, through wholesale termination of client relationships,” said Tshazibana.
“De-risking may pose a threat to financial integrity in general and to the application of a risk-based approach,” she continued.
“It could potentially create opacity in the affected persons’ or entities’ financial conduct, and it eliminates the possibility to treat ML/TF/PF risks.”
